Are 1,000% APYs over?

Did you know it’s possible to earn an annual percent yield (APY) on cryptocurrency?

That’s right. You can earn money on cryptocurrency the same way you earn money on your bank deposit. 

It’s also possible to earn money by simply holding Bitcoin without investing it. You simply wait for the price to increase. 

There are countless stories of people earning 1000% or more from cryptocurrency – both from interest on a cryptocurrency deposit and from an increase in the value of cryptocurrency.

This article will cover both cases. We will also offer our opinion on whether the days of earning large amounts of money from cryptocurrency are over.

What is APY?

APY means annual percent yield. Basically, this is the rate of return that you receive on an investment. For instance, if you deposit at $100.00 of cryptocurrency and earn $5.00 over the year, then you have a 5% APY on your deposit. 

The important part to factor into the APY equation is that compounding interest is included in the number. 

What is a typical APY in cryptocurrency?

A typical APY from a cryptocurrency is around 5%-12%. In fact, anything above 12% is pretty rare and tends to be a scam or extremely risky these days.

That said, there were ways to earn a high APY that were less risky than standard yield farming. It’s something called liquidity mining. 

Basically, liquidity mining is standard yield farming with one addition. You receive the normal yield plus a governance token for the protocol that you use for yield farming. 

This token can increase in value, which has led to some users earning a 1000% APY. 

Was a 1000% APY common?

Yes, a 1000% APY was somewhat in DeFi with liquidity mining on Compound. 

The tokens these protocols offered as a liquidity mining reward increased in value so much that the APY would sometimes rise over 1000%. It was at the point that yield farmers were not farming yield – they were liquidity mining. In other words, they were only yield farming because to earn tokens from liquidity mining. 

Liquidity Mining – Explained

As explained earlier, liquidity mining is earning governance tokens from a DeFi protocol in exchange for providing liquidity to the trading pool. 

In other words, it was possible to earn standard yield from staking and a governance token. The value of these governance tokens increased so much that people were earning far more money from the governance token than they were from the yield. 

Why did Compound offer liquidity mining?

Compound popularized liquidity mining, but they didn’t invent it. However, it was so uncommon before Compound offered it that we will explain why Compound offered liquidity mining. It really came down to two reasons:

The Compound Teams Holds Over 50% of COMP

The first, and possibly main, reason that Compound offered liquidity mining was because the Compound development team held, and still holds, over 50% of COMP. By offering COMP as a reward for providing liquidity, the value of COMP increased. That increase benefited the development because they held so much COMP. 

The price of their holdings increased and the liquidity of their holdings increased. It was a win-win for the development team. Remember, they held over 50% of the tokens, so they still had control of the governance.

It Adds Liquidity

The other reason to add liquidity mining is in the name “liquidity mining” – liquidity. Liquidity mining added a huge amount of liquidity to the pools because so many investors were chasing the rewards from liquidity mining. 

In fact, it became a little bit of a problem because liquidity miners were hunting for the pools that offered the best liquidity mining rewards, which led to some pools having significantly more liquidity than others. 

For instance, Basic Attention Token (BAT) became the most popular pool on Compound for a period of time because it offered the best liquidity mining rewards. 

What are the odds of seeing 1000% APYs again?

The odds of 1000% APYs in DeFi are very low. 

It’s the same situation as early adopters of Bitcoin earning a profit of over 10000% – early investors make money, so new investors join and the price never drops low enough for anyone to earn huge returns again.

In the case of DeFi, liquidity mining was a strategy to encourage more users to stake crypto on DeFi protocols. That mission has mostly been accomplished, though. In fact, Uniswap stopped their liquidity mining reward program because they did not need to add any more liquidity to their staking pools. 

There is nearly $12 billion USD of cryptocurrency locked into DeFi. That number was at under $1 billion USD at the beginning of 2020, so that’s obviously a massive increase. 

The other problem with seeing 1000% APYs again is that 

We don’t expect that number to go down, which makes it very unlikely that 1000% APYs will return because it’s unlikely that liquidity mining will ever return with the strength it had in early 2020.

It’s Still Possible to Earn 1000% with Cryptocurrency

The good news is that it’s still possible to earn 1000% with cryptocurrency. You just probably won’t see 1000% returns with staking or DeFi.

So, how is it possible to earn 1000% with cryptocurrency?

The same way investors made millions in 2017. Purchasing cryptocurrency and hoping it rises in value. 

We do admit that this is unlikely, but it is still possible. Here are some cryptocurrencies that have the potential to see a 1000% increase in price. 

Ripple (XRP)

The highest price Ripple reached was over $3.00 per coin in January 2018. The price of Ripple (XRP) is currently $0.50. 

That means that if Ripple (XRP) hit it’s all time high again you will have a 600% return on your investment. Of course, if Ripple hits $3.00 again, then it will likely go higher than its all time high. 

With that in mind, Ripple (XRP) appears to be the most likely cryptocurrency to return over 1000%.

Litecoin (LTC)

Litecoin is another cryptocurrency that has not come close to hitting its all time high from the 2017 crypto bull run. The all time high of Litecoin (LTC) was $360 per coin. The current price of Litecoin (LTC) is approximately $80 per coin. 

That means if Litecoin (LTC) hits its all time again the price will have increased by 450%. That’s a 450% return.

We know, that isn’t 1000%. However, Litecoin has proven that it has the potential to hit that price.

Polkadot (DOT)

Polkadot is another cryptocurrency that has a great chance of having Bitcoin-like increases in price. The reason is simple – it’s the solution to the sharding problem Ethereum 2.0 will encounter. 

Polkadot already saw a huge price increase when the cryptocurrency was launched in August 2020. The price immediately spiked and the market cap of the Polkadot jumped to the 9th highest cryptocurrency market cap. 

That is unheard of for a newly launched cryptocurrency, which is a great sign that Polkadot will continue to see large price increases.

Final Thoughts

That’s it for our article on 1000% APY in DeFi. In our opinion, the days of 1000% APY. 

They only existed for a few weeks before it became too popular and stopped earning money. However, it is still possible to earn a respectable 10% APY with DeFi on Uniswap or Compound with standard yield farming and liquidity mining. 

Alternatively, there are still cryptocurrencies that have the potential to increase by over 1000% over the next few years. We know that is not the same as APY, but we mention it because it’s still possible to earn huge returns with cryptocurrency.